SiriusPoint(SPNT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported a significant turnaround in profitability with a net income of $217.3 million for the first six months of 2023, reversing a $269.4 million loss in the prior year, driven by strong underwriting performance and a substantial positive swing in investment results, leading to total assets growing to $12.6 billion and total shareholders' equity increasing to $2.3 billion Consolidated Balance Sheets As of June 30, 2023, total assets increased to $12.6 billion from $11.0 billion at December 31, 2022, driven by increases in debt securities and insurance-related receivables, while total liabilities also rose to $10.4 billion from $9.0 billion, primarily due to higher reinsurance balances payable and unearned premium reserves, with total shareholders' equity growing to $2.3 billion from $2.1 billion at year-end Consolidated Balance Sheet Highlights (in millions USD) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Investments | $5,952.8 | $5,653.7 | | Total Assets | $12,622.8 | $11,036.3 | | Total Liabilities | $10,355.1 | $8,953.7 | | Total Shareholders' Equity | $2,267.7 | $2,082.6 | Consolidated Statements of Income (Loss) The company achieved a net income of $72.3 million in Q2 2023, a significant reversal from a net loss of $56.1 million in Q2 2022, with the six-month net income reaching $217.3 million compared to a $269.4 million loss in the prior year, primarily driven by higher net premiums earned and a substantial positive swing in investment results, which went from a $141.5 million loss in Q2 2022 to a $65.8 million gain in Q2 2023 Key Income Statement Data (in millions USD, except EPS) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $703.8 | $568.8 | $1,299.3 | $1,098.1 | | Total Revenues | $767.9 | $473.1 | $1,453.0 | $834.5 | | Net Investment Gains (Losses) | $65.8 | $(141.5) | $139.6 | $(346.6) | | Net Income (Loss) | $72.3 | $(56.1) | $217.3 | $(269.4) | | Diluted EPS | $0.37 | $(0.38) | $1.14 | $(1.74) | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash provided by operating activities was $206.3 million, a significant increase from $45.2 million in the prior-year period mainly due to higher premium collections, while net cash used in investing activities decreased to $297.5 million from $605.4 million, and net cash used in financing activities increased to $51.1 million primarily due to the settlement of Contingent Value Rights Cash Flow Summary for Six Months Ended June 30 (in millions USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $206.3 | $45.2 | | Net cash used in investing activities | $(297.5) | $(605.4) | | Net cash used in financing activities | $(51.1) | $(11.0) | | Net decrease in cash | $(142.3) | $(571.2) | Notes to the Consolidated Financial Statements Key disclosures in the notes include a significant loss portfolio transfer (LPT) transaction that ceded approximately $905.6 million in reserves, resulting in a deferred gain, with segment reporting showing strong performance in the Reinsurance segment, achieving a combined ratio of 72.5% for H1 2023, and the company recording $138.4 million in net favorable prior year loss reserve development for H1 2023, significantly contributing to profitability - On March 2, 2023, the company entered into a loss portfolio transfer (LPT) transaction with Pallas Reinsurance, ceding loss reserves initially estimated at $1.3 billion. As of June 30, 2023, this was reduced to $905.6 million, and an initial deferred gain of $21.2 million was recorded[28][29] - For the six months ended June 30, 2023, the company recorded $138.4 million of net favorable prior year loss reserve development, primarily validated by the pricing of the 2023 LPT and continued favorable loss emergence[152] - For H1 2023, the Reinsurance segment reported underwriting income of $159.0 million and a combined ratio of 72.5%, a significant improvement from $2.9 million and 99.6% in H1 2022[53][55] - For H1 2023, the Insurance & Services segment reported underwriting income of $30.1 million and a combined ratio of 95.2%, compared to $19.4 million and 95.8% in H1 2022[53][55] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the strong H1 2023 results to strategic actions including improved underwriting, a significant loss portfolio transfer (LPT), and a de-risked investment portfolio, which improved the Core combined ratio to 78.2% and the BSCR ratio to 219% in Q1 2023, enhancing capital flexibility - Management highlights the strategic transformation, focusing on re-underwriting to reduce volatility, de-risking the investment portfolio, and growing the Insurance & Services segment[219] - The 2023 LPT is expected to result in a net capital increase of over $150 million and improve the BSCR ratio by more than 15% compared to year-end 2022[345] Key Performance Indicators | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Combined ratio | 78.2% | 93.4% | | Core income (non-GAAP) | $205.5M | $46.9M | | Book value per common share | $12.59 | $11.56 (at 12/31/22) | | Tangible book value per diluted common share (non-GAAP) | $11.39 | $10.43 (at 12/31/22) | Consolidated Results of Operations The significant improvement in H1 2023 results was driven by a $211.5 million increase in total underwriting income and a $486.2 million positive swing in investment results compared to H1 2022, stemming from $138.4 million in favorable prior year development and lower catastrophe losses, with investment gains driven by higher interest income from the repositioned fixed-income portfolio - H1 2023 underwriting results improved due to favorable prior year loss reserve development of $138.4 million (vs $11.9 million in H1 2022) and lower catastrophe losses of $12.9 million (vs $23.1 million in H1 2022)[249] - Investment results for H1 2023 saw a total gain of $139.6 million, a stark contrast to the $346.6 million loss in H1 2022, primarily due to higher interest income from the fixed income portfolio and the absence of large losses from related party investment funds[247][256] Segment Results The Reinsurance segment was the primary driver of improved profitability, with its H1 2023 combined ratio improving to 72.5% from 99.6% in the prior year fueled by significant favorable reserve development, while the Insurance & Services segment saw strong premium growth of 22.8% in H1 2023, and Corporate results also improved turning to an underwriting income of $23.5 million from a loss Reinsurance Segment Underwriting Results (H1) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Underwriting Income (Loss) | $159.0M | $2.9M | | Combined Ratio | 72.5% | 99.6% | Insurance & Services Segment Underwriting Results (H1) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Gross Premiums Written | $1,126.7M | $917.4M | | Underwriting Income | $30.1M | $19.4M | | Combined Ratio | 95.2% | 95.8% | Liquidity and Capital Resources The company maintains strong liquidity primarily through its high-quality, short-duration fixed income portfolio and operating cash flows, with its Bermuda Solvency Capital Requirement (BSCR) ratio improving to 219% in Q1 2023 from 217% at year-end 2022, and the recent LPT is expected to further improve the BSCR ratio by over 15%, enhancing capital flexibility - The company's Bermuda Solvency Capital Requirement (BSCR) ratio was 217% at year-end 2022 and improved to 219% in Q1 2023[344] - The 2023 LPT is expected to increase net capital by over $150 million and improve the BSCR ratio by more than 15% from year-end 2022 levels[345] - As of June 30, 2023, the company had a $300.0 million senior unsecured revolving credit facility with no outstanding borrowings[347] Quantitative and Qualitative Disclosures About Market Risk The company is principally exposed to interest rate risk, foreign currency exchange risk, and price risk in its investment portfolio, where a hypothetical 100 basis point increase in interest rates would decrease the fair value of its debt securities by approximately $134.7 million, risks actively managed through asset-liability matching and derivatives Interest Rate Risk Sensitivity on Debt Securities (as of June 30, 2023) | Assumed Change in Interest Rate | Estimated Change in Fair Value (in millions USD) | | :--- | :--- | | 100 bp decrease | +$127.0 | | 100 bp increase | -$134.7 | | 200 bp increase | -$268.0 | - A hypothetical 10% increase in the value of the U.S. dollar against the Swedish Krona would result in a pre-tax gain of $7.1 million due to the company's net liability position in that currency[383] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, following the implementation of a new general ledger system in Q1 2023 and corresponding internal control adaptations, with no other material changes to internal control over financial reporting occurring during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2023[386] - A new general ledger and financial reporting system was implemented in Q1 2023, with corresponding modifications to internal controls[387] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various lawsuits and regulatory actions in the normal course of business, though management believes that no individual litigation or arbitration is likely to have a material adverse effect on its financial condition or operations - The company is involved in claims litigation, disputes over policy interpretations, and other business litigation typical for the insurance industry[390] - Management believes no current legal proceeding is likely to have a material adverse effect on the company[391] Risk Factors There have been no material changes to the company's risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors from the 2022 Form 10-K were reported[392] Issuer Purchases of Equity Securities The company did not repurchase any of its common shares during the three and six months ended June 30, 2023, with approximately $56.3 million remaining available for future purchases under the authorized share repurchase program - No common shares were repurchased during the three and six months ended June 30, 2023[394] - Approximately $56.3 million remains authorized for repurchase under the existing program as of June 30, 2023[394] Exhibits The report includes several exhibits, such as an employment agreement, an amendment to a credit agreement, the Loss Portfolio Transfer agreements, and required CEO/CFO certifications - Key exhibits filed include the Loss Portfolio Transfer Reinsurance and Retrocession Agreements with Pallas Reinsurance Company Ltd[400]